Unemployment statistics out yesterday confirmed that Treasury’s early Covid-19 forecasts were woefully off the mark.
But ironically, those same forecasts prompted the Government to act, which is why yesterday’s statistics were so positive.
Statistics NZ reported that unemployment for the December quarter was 4.9 per cent; well below the 13.3 per cent Treasury had forecast last April.
But Treasury’s forecast was produced before the 2020 Budget in which Finance Minister Grant Robertson allocated $50 billion for the Covid-19 Relief and Recovery Fund. (CRFF)
That was $10 billion more than the maximum Treasury’s forecasters had allowed for in April when they produced their initial Covid-19 economic scenarios.
Robertson told POLITIK yesterday that Treasury’s April forecasts “were part of our thinking as we put together Budget 2020 and the $50 billion CRRF.
“I think I said in a presser at the time that I simply was not prepared to see unemployment of that level,” he said.
In many ways, he has succeeded beyond even his own hopes.
But behind yesterday’s figures are also some unpleasant truths.
Maori unemployment remains stubbornly high at nine per cent; Pasifika at 9.6 per cent and the South Island where only Canterbury has an unemployment rate above four per cent is doing much better than the north.
Robertson was in Waitangi last night, in the heart of Northland, where unemployment is at 5.6 per cent, below only Gisborne and Hawke’s Bay who are at 5.7 per cent.
Nevertheless, the trading bank economists were positive about yesterday’s figures.
And interestingly, they were forecasting that the Reserve Bank might not now not only not need to move to negative interest rates but might be able to bring forward any plan to raise rates; that would (theoretically) slow the housing market.
Kiwibank’s economics’ team in their analysis of the figures said the unemployment report was “truly remarkable”;
“Wage growth has cooled in a highly uncertain Covid world,” they said.
“Companies are battling supply disruptions, surges in costs, and a dearth in foreign visitor demand.
“ That said, we’ve found ourselves in a much better place.
“There’s nowhere else you’d rather be in the world right now.
“And the labour market data reflects the resilience of the Kiwi economy.
“Since bouncing out of lockdown, our economy has outperformed most developed economies around the world.”
But amidst the euphoria, there were also cautionary words.
“These results are of course welcome, but they represent a shot across the bow for policymakers,” said Westpac economist, Michael Gordon.
“The rebound in the level of GDP, the surging housing market, higher than expected inflation, and now falling unemployment all make it obvious that the combined efforts of the Government and Reserve Bank to support the economy through the Covid shock have had a much more powerful effect than anticipated.
“ That calls into question just how much ongoing stimulus is appropriate, particularly over the period when vaccines are rolled out, and global travel resumes.
“ It’s becoming increasingly possible that the RBNZ will regret some of the stimulus measures that it put in place last year, and could start to tighten policy sooner than we previously anticipated.”
ASB economist, Mike Jones said: “Last year’s flood of Reserve Bank (and fiscal) stimulus has done the trick, and no more is required. We agree with the market pricing some risk of a lift in interest rates in 2022.”
Interestingly, Robertson’s former economic advisor and now CTU Economist and Director of Policy, Craig Renney, warned that the data was unevenly spread across all groups in the economy.
“Whilst some groups are doing well and returning to pre-Covid-19 normal, others are still doing it tough,” he said.
“Those groups who traditionally faced challenges in the labour market are still struggling, and more government support will be necessary.
“While we see GDP growth returning, wages for many are not growing at all.
“Genuinely ‘Building back better’ for New Zealand will mean addressing both these issues.”
That caution was reflected in the Beehive where officials warned that the future of the economy was still uncertain because the future of Covid 19 is uncertain.
There are still concerns that the full impact of the closure of the border and the impact that is having on the tourism industry has yet to fully show up in data.
But Robertson was, as they say in rugby, happy to take the points.
“The Government’s decisive actions to keep people connected to their jobs and support businesses and households through the COVID-19 pandemic has been reflected in today’s positive number,” he said.
But the economic good news wasn’t all on the jobs front.
Buoyed by recent demand from China reflected in rising Global Dairy Trade auction prices, Fonterra yesterday raised its 2020/21 forecast Farmgate Milk Price range to $6.90 – $7.50 per kg of milk solids, up from NZD $6.70 – $7.30.
All up the co-operative is expecting to inject $11 billion into the New Zealand economy this year.
Perhaps, not surprisingly, Federated Farmers reported that its members were growing in confidence.
Of the nearly 1,100 farmers who completed the Feds’ Research First survey in the second week of January, a net 5.5% considered current economic conditions to be good.
That is a 34-point jump from the July 2020 survey when a net 28.6% considered them bad, marking the lowest level of farmer confidence in the 12 years the six-monthly survey had been conducted.
“Looking ahead, a net 43.8% expect general economic conditions to worsen over the next 12 months. That may sound a bit grim, but just six months ago, 58.7% of survey respondents expected a deteriorating economy,” Federated Farmers President Andrew Hoggard said.
“I think farmers, like other New Zealanders, are feeling buoyed by the way we’ve handled the pandemic despite the torpedo to international tourism.
“The agricultural sector is willing and able to maintain production so long as regulatory and other stumbling blocks don’t trip us up.”
